1.
1)Which of the following are consistent with Keynesian economics?I.There is an...

1.
1)Which of the following are consistent with Keynesian economics?I.There is an inverse relationship between inflation and unemployment (i.e., when inflation increases, unemployment decreases).II.A little inflation is almost always a good thing.III.The economy is like a machine that is in need of almost constant fine tuning and adjustment by government.IV.The government should increase spending during recessions and decrease spending during periods of economic expansion.V.It is best to not interfere with markets.VI.The market will adjust and fix itself during recessions.
A.V & VI
B.I, II, III, & IV.
C.II, III, & IV
D.III & IV
Score: 0 of 1

2.
2)Which of the following are consistent with the economic views of F. A. Hayek?I.There is an inverse relationship between inflation and unemployment (i.e., when inflation increases, unemployment decreases).II.A little inflation is almost always a good thing.III.The economy is like a machine that is in need of almost constant fine tuning and adjustment by government.IV.The government should increase spending during recessions and decrease spending during periods of economic expansion.V.It is best to not interfere with markets.VI.The market will adjust and fix itself during recessions.
A.V & VI
B.I, II, III, & IV.
C.V
D.III & IV
Score: 0 of 1

3.
3)From the 1930s to the end of the 1970s, the views of which economist seemed to dominate the policy making decisions?
A.Frederick A. Hayek
B.John Maynard Keynes
C.Milton Friedman
D.John Maynard Hayek
Score: 1 of 1

4.
4)During the 1970s the American economy experienced ________ which is a deadly combination of high_________ and high _____________.
A.Stagflation, inflation, unemployment
B.Inflation, stagnation, unemployment
C.Unemployment, inflation, government growth
D.Stagflation, inflation, government growth
Score: 0 of 1

5.
5)Stagflation in the 1970s called into question
A.the ability of the free market to regulate itself without government intervention.
B.the ideas of F. A. Hayek and other free market economists.
C.the effectiveness of government intervention proscribed by Keynesian economists.
D.Both A and B.
Score: 1 of 1

7.
7)Deregulation of the airlines led to
A.lower prices and higher quality among the airline companies.
B.more competition among the airline companies.
C.higher prices and low quality among the airline companies.
D.Both A and B.
Score: 1 of 1

The best answer to question #1 is Option B. All of statements I, II, III and IV are correct.

John Maynard Keynes was a very important economist who was most famous for his attacks on classical theories of economics. Keynes argued that classical economic ideas were wrong. He did not believe that the economy should be left alone or that the market would fix itself in times of recession. He was strongly influenced by the Great Depression which, he felt, proved that classical economics was not correct. Therefore, statements V and VI in this question are not consistent with Keynesian ideas.

The main point of what Keynes argued was that the government needed to intervene in the economy in order to keep it stable. He argued that the government would need to constantly be adjusting its fiscal policy to make sure that there would not be either too much unemployment or too much inflation. The government could raise and lower taxes and spending to accomplish this goal. When the economy was not doing well (in times of recession) the government would need to increase spending so as to increase aggregate demand. This means that statements III and IV are correct.

Statements I and II are also true of Keynesianism. Keynes believed that a little inflation was generally a good thing because inflation tended to be inversely associated with unemployment. If there was not enough inflation, there would be too much unemployment. If very low inflation leads to excessive unemployment, then we would presumably want some inflation so that unemployment would be minimized.

Thus, statements I through IV are correct. This means that Option B is the best answer.